Stock Analysis

Abu Dhabi National Hotels Company PJSC (ADX:ADNH) Might Have The Makings Of A Multi-Bagger

ADX:ADNH
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Abu Dhabi National Hotels Company PJSC (ADX:ADNH) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Abu Dhabi National Hotels Company PJSC:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.036 = د.إ362m ÷ (د.إ11b - د.إ925m) (Based on the trailing twelve months to September 2023).

Therefore, Abu Dhabi National Hotels Company PJSC has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 6.9%.

See our latest analysis for Abu Dhabi National Hotels Company PJSC

roce
ADX:ADNH Return on Capital Employed December 12th 2023

Above you can see how the current ROCE for Abu Dhabi National Hotels Company PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Abu Dhabi National Hotels Company PJSC here for free.

What Does the ROCE Trend For Abu Dhabi National Hotels Company PJSC Tell Us?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 117% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To bring it all together, Abu Dhabi National Hotels Company PJSC has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Abu Dhabi National Hotels Company PJSC looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ADNH is currently trading for a fair price.

While Abu Dhabi National Hotels Company PJSC isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Abu Dhabi National Hotels Company PJSC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.